Housing Cost and Regulation

From the news columns of the New York Times – not the editorial page of the Wall Street Journal, but the news columns of the New York Times, which aren't usually known for their strident libertarianism:

A decade after the big housing bust dealt a blow to many smaller home builders, the industry's largest firms continue to grapple with higher regulatory expenses that make building homes — especially starter homes — too costly, some housing-finance experts said. The situation confounds some people, given the pressing need for affordable housing for young families.

Laurie Goodman, a director of housing-finance policy for the Urban Institute, said the nation suffered from a "huge supply shortage" of new single-family homes.

"The underlying structural problem is we are not building enough homes and homes are costly to build," Ms. Goodman said. "We all agree that more things should be handicapped accessible and new homes should be hurricane proof, but there is a cost associated."

Got that? Regulations are making new homes too costly, according to not just the New York Times but the Urban Institute, which is a center-left think tank whose board includes a few Republicans but is also populated with Democrats such as Deval Patrick, Anthony Williams, Henry Cisneros, Erskine Bowles, Donald Baer, and Jamie Gorelick.

And that's just the regulations that apply to the construction. It doesn't even get into the question of regulations of mortgage lending, which have made it even harder for many people to borrow money for these newly constructed houses.

The kicker is how the businesses are responding to the regulation: by merging into even bigger businesses:

two of the nation's biggest residential-construction companies are merging in hopes that their combined heft will help them counter those forces.

The Lennar Corporation said on Monday that it would merge with the CalAtlantic Group to form America's largest home builder in a stock-and-cash deal worth $5.7 billion. The deal would create a behemoth with around 240,000 building plots in 21 states, a market value of about $18 billion and combined revenue of $17 billion over the past 12 months.

Excessive regulation, in other words, not only hurts homebuyers by making houses more expensive. It also makes it harder for non-giant companies to compete. In a heavily regulated economy, only huge companies have the market power and can afford the armies of lawyers and lobbyists needed to survive.

I don't think the Times or the Urban Institute is calling for homes that blow away in a breeze or that are inaccessible to people in wheelchairs or on crutches. What they do seem to be saying is that the current balance is off, and that it may be worth examining some common-sense ways of adjusting it.